A briefing paper prepared for the Council on Contemporary Families by Sarah Thébaud, University of California at Santa Barbara

November 5, 2015

Most Americans agree that entrepreneurship is an important component of economic growth and job creation. Small businesses accounted for two million new jobs last year, and innovative start-ups like those in Silicon Valley are key contributors to our GDP.

But women are a vastly under-tapped resource when it comes to growing a vibrant economy. For instance, in 2014, woman-owned firms in the United States employed only six percent of the workforce and created less than four percent of all business revenues—a figure that is about the same as it was in 1997.

In a recent analysis of survey data from 24 countries between 2001 and 2008, I find some surprising evidence about different kinds of gender gaps in entrepreneurial activity and the relationship between those gender gaps and government policies. It turns out that having more women entrepreneurs does not necessarily mean that more women are running large or lucrative types of enterprises. When it comes to entrepreneurial startups, in contrast to our experience with the benefits of having more women enter traditional workplaces, sometimes fewer ends up meaning better.

For many years, scholars and policymakers have pointed out that work-family policies such as childcare and family leave make it easier for workers with caregiving responsibilities—the majority of whom are women—to remain employed. But these policies might also have unintended consequences. For instance, since they reduce women workers’ need to search for a more flexible alternative to traditional wage and salaried employment, they may also reduce their chances of starting a business.

My new research suggests that such a trade-off exists. When I control for age, education, and a host of country-level factors that are known to correlate with entrepreneurship, I find that the gender gap in the probability of starting and owning a business is larger when states spend generously on childcare than when they don’t.

For instance, in countries with little state spending on childcare, such as the U.S. or Canada, women are about two-thirds as likely as men to be engaged in entrepreneurial activity, whereas in countries where the state spends generously on such family-friendly policies, like Denmark or Finland, women are only about half as likely as men to be entrepreneurs. Raw figures from a recent report similarly suggest that women are less likely to pursue business ownership where governments invest substantially in family-friendly work policies: Approximately ten percent of the adult woman population in the U.S. and Canada, but only four percent in Finland and Denmark, was involved in starting a new business in 2014.

At first blush, this pattern seems to suggest that a lack of government social programs is a boon to free enterprise. But my analysis also shows that the relatively smaller group of women who do run businesses in contexts with supportive work-family policies are more likely to run larger and more growth-oriented businesses—businesses that are more similar to those of their men counterparts. Specifically, I find that women business owners employ more workers, express more ambitious growth intentions, and are more likely to report introducing a brand new product or service to the market in countries where government policies mandate between 20 and 30 weeks of full-time equivalent paid leave. There is also evidence that when government spending on childcare is relatively high (e.g. more than 0.5 percent of GDP), women business owners are somewhat more likely to sell products or services that require the use of new technology.

Why this difference? One simple reason: Where supportive work-family policies are not present, women are more likely to pursue entrepreneurship as a fallback employment strategy rather than an active choice. For instance, my analysis shows that when governments devote minimal public spending to childcare, women entrepreneurs are substantially more likely to report having turned toward entrepreneurship because of a need for a better employment situation than are women entrepreneurs whose governments provide more generous child care supports. In the absence of supportive family policies, women are more likely to pursue self-employment out of the need for greater control over their schedules, hours, and the physical location of work.

The problem is that when individuals pursue entrepreneurship out of a need for greater work-family balance rather than out of a desire to respond to a specific business opportunity, they tend to start smaller, less lucrative, and less aggressively growth-oriented businesses.

My research challenges the usual opposition posited between policies adopted to further free enterprise and those adopted to extend family-friendly protections to the traditional workforce. By giving the average woman a broader menu of attractive opportunities in standard employment, supportive work-family policies actually increase the chances that, when a women does pursue entrepreneurship, she will be motivated not by a lack of attractive employment options, but by a desire to build an organization that will have a distinct impact on the economy and job growth.

Implications

These findings suggest that free market advocates and proponents of public spending should recognize common interests. Where supportive family policies are lacking, women may achieve higher but not better levels of representation in entrepreneurship. By reducing barriers to employment, supportive work-family policies promote women’s engagement in the types of aggressive, innovative, and growth-oriented types of entrepreneurship that are arguably so critical to economic growth. This happens because having access to work-family policies minimizes the chances that a woman will find herself in a situation in which she needs to turn to self-employment as a fallback strategy for reconciling work and family demands—and thus, the chances that she will find herself vulnerable to the financial instability that is often part and parcel to small, low-growth forms of self-employment. For instance, in the US, women-owned firms have been struggling more in recent years than in the past, a trend that fuels women’s lower incomes. Yet, growth-oriented women entrepreneurs have been found to be among the happiest workers in our economy. So the message is clear: let’s work toward policies that expand the menu of options for women workers—and therefore promote entrepreneurship as an opportunity-driven choice—rather than policies that limit these options and, as a result, reinforce existing gender inequalities in the labor force.

This study is forthcoming in the November 2015 issue of Administrative Science Quarterly.

For further information, contact:

Sarah Thébaud

Assistant Professor of Sociology and Research Associate at the Broom Center for Demography
University of California, Santa Barbara